Photo of Frans Timmermans, executive vice-president for the EU’s green deal
Frans Timmermans, executive vice-president for the EU’s green deal, said the bloc’s trading partners should remain on guard over a carbon tax adjustment © REUTERS

The European Union would have “no hesitation” in using a carbon border tax adjustment to protect its industries if the bloc’s trading partners put companies in the region at a disadvantage over climate targets, the EU climate tsar has said.

This is despite the frosty reception for the idea from allies led by John Kerry, US president Joe Biden’s climate envoy. Kerry warned this month in an interview with the FT that such a tax should be a “last resort”.

A tax on imports from countries that were not committed to reaching climate neutrality by mid-century is being drawn up by the EU.

Speaking at an FT climate conference on Tuesday, Frans Timmermans, executive vice-president for the EU’s green deal, said the bloc’s trading partners should expect the tool to be used if they did not meet the required standards.

“If there is a serious risk of carbon leakage, if we take the measures to comply with [the Paris Agreement] and others don’t, and it leads to a disadvantage to our industries, I will have no hesitation whatsoever to introduce carbon border adjustment mechanism,” he said.

If countries were moving “in the same direction, even if they take different paths” then “the reason for the carbon border adjustment mechanism disappears”, he added.

Brussels has said the mechanism will be designed to target imports “surgically”, and it is expected to be applied initially to certain goods from neighbouring countries in eastern Europe, Turkey and north Africa.

The prospect of prices on carbon — until recently a relatively niche idea — has gained traction in recent months and was met with broad support from financial leaders appearing at the FT conference on Tuesday. 

“The world needs a carbon price,” either via taxation or market mechanisms, such as additional prices added to goods based on their carbon footprint, said Marc Engel, chief supply chain officer at Unilever.

He said Unilever favoured carbon pricing over taxation, since “the money will be more efficiently spent” by market participants. A carbon price would create a “level playing field” and drive companies to innovate to avoid having to pay it, he added.

Pierre-André de Chalendar, chief executive of building materials supplier Saint-Gobain, said a border adjustment mechanism would be necessary until there was a “worldwide price of carbon” to protect businesses from being undercut by competitors in jurisdictions with less stringent climate policies.

Saint-Gobain has an internal carbon price of €50 per tonne of CO2 and €150 per tonne factored into capital spending and research and development cost analysis, respectively, he added.

Microsoft co-founder Bill Gates also said a carbon border tax would be “necessary”, the question was how soon it should be implemented. 

The EU, as well as the UK and other countries, has an internal carbon trading system that caps emissions from certain sectors and requires companies to buy tradeable allowances. The price of EU allowances has hit a series of record highs this year, at more than €40.

In comparison, the price of carbon offsets — which organisations can choose to buy to compensate for their emissions — ranges from about $1 to more than $100. The bulk of credits are at the cheap end of the spectrum, which critics have said does little to incentivise material changes.

Jonathan Goldberg, chief executive of the advisory group Carbon Direct, said there was already “significant support” for a carbon price of more than $100 per tonne, which governments were indirectly paying via subsidies or tax incentives for low carbon fuels.

Asoka Woehrmann, chief executive of asset manager DWS, said he expected the price of carbon to rise “much higher” than $100 per tonne, though he added that it could come down as economies and supply chains decarbonised.

Representatives from the Swiss and Dutch central banks also said governments must do more to address the risks posed by climate change, which could include carbon pricing.

“One of the biggest risks that we have as a central bank is really political inaction,” said Thomas Jordan, chair of the governing board at the Swiss National Bank. “When the governments are not ready to take the necessary action, especially carbon pricing, they put central banks more and more in a difficult position.”

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article

Comments